The average age of a farmer in Ireland is currently 60 which means that a substantial number are over 65 and leading healthy and active lives, enjoying an income from their farms while also being in receipt of a state pension.
Many will have some exposure to income tax while some will have significant liabilities. In this article I will outline the various relief's particularly, but not exclusively relevant to the over 65s.
INCOME TAX CREDITS & EXEMPTIONS
Tax payers of 65 years or over are entitled so an additional tax credit of €245 for a single or widowed person and €490 for a married/civil partners couple, if either is over 65.
This means that assuming they are low band tax payers they can earn an additional €1,225 or €2,450 respectively free of tax.
Additionally, where their total taxable income is less that €18,000 in the case of a single person or €36,000 in the case of a married couple they are totally exempt from income tax.
However they are not exempt from Universal Social Charge.
If your income is not much above these amounts, you may get what is called "marginal relief".
That means that you do not go back into the normal tax system - instead you pay tax at a rate of 40pc on the amount by which your income exceeds your relevant exemption. So, say for example you are a married couple and your taxable income is €38,000 you pay €800 tax. If you were under 65 you would pay €3,350.
SPOUSE'S STATE PENSION RELIEF
Where your spouse is in receipt of a pension in his/her own right they are entitled to the employee tax credit of €1,650.
In addition they are entitled to the extended low tax band for earning spouses.
This should not be confused with spouses who are in receipt of the qualified adult allowance. Even though the qualified adult allowance may be payable directly to the dependent spouse, she/he is not entitled to claim the employee tax credit, nor is she/he entitled to avail of the extended lower tax band in respect of this income.
DEPOSIT INTEREST RETENTION TAX
Deposit Interest Retention Tax (DIRT) is deducted at a rate of 39pc from the interest payable on savings in banks, building societies, etc.
This happens whether or not you would normally be liable for tax. If you are aged 65 or over or your spouse or civil partner is aged 65 or over or if you are permanently incapacitated, you will not be liable for DIRT if you are exempt from income tax.
You can notify your financial institution so that they can pay your interest without deducting DIRT. Where DIRT exceeds €300 in any year the financial institution is required to return details of that account to Revenue. DIRT is not liable to Universal Social Charge but is liable to PRSI for persons under 66 years.
DEEDS OF COVENANT
Commonly, situations may arise where a son or daughter takes over the farm and agrees to make a regular payment to the parent. Generally such payments are not tax allowable for the person paying out the money.
A Deed of Covenant offers an opportunity to pay over money in a tax allowable manner, albeit subject to certain limitations. A Deed of Covenant is a legally binding written agreement made by an individual to pay an agreed amount to another individual, without receiving any benefit in return.
A deed must be capable of exceeding a period of 6 years to qualify for tax relief. Tax relief can be claimed on covenants in favour of adults aged 65 or over but is subject to a 5pc restriction, i.e. the amount of tax relief available cannot exceed 5pc of the covenantor's total income.
For example, if the party paying over the money under the covenant has an income of €40,000, they are allowed claim tax relief on up to €2,000 of the total payment made. It should be noted that the payment must be made net of tax whereby the actual tax is paid over to Revenue.
If the person receiving the payment is not liable to tax they will receive a refund of the tax paid on their behalf.
MEDICAL EXPENSES RELIEF
Most medical costs are tax deductible at the 20pc tax rate such as doctors' and consultants' fees, diagnostic procedures carried out on the advice of a practitioner and drugs or medicines prescribed by a doctor, dentist, or consultant.
In addition items such as physiotherapy or orthotopic treatment prescribed by a practitioner are allowable as are special foods for coeliacs and diabetics.
You are not allowed relief on costs that are reimbursed by a health insurance provider, such as VHI or LAYA.
Nor are you allowed routine dental and ophthalmic care. You must make a claim for tax relief within 4 years after the end of the tax year to which the claim relates. Therefore, in the current year the furthest you can go back is 2013.
You may claim tax relief in respect of the cost of employing a person (including a person whose services are provided by or through an agency) to take care of a family member or relative who is totally incapacitated by reason of physical or mental infirmity.
Tax relief may be claimed on the lower of the actual cost incurred in employing the carer, or €75,000 at the claimant's highest rate of tax.
Relief can be claimed in the first year in which the claimant proves that either he or she or a relative was totally incapacitated by physical or mental infirmity. There is no requirement to apportion the relief by reference to the period of incapacity.
NURSING HOME COSTS RELIEF
Income tax relief can be claimed on fees paid for nursing homes and is available at the 40pc rate of tax assuming you are liable to tax at that rate.
You can claim tax relief for nursing home fees under the general scheme for tax relief on medical expenses. If you are paying the charges for a nursing home you can claim the tax relief, whether you are in the nursing home yourself or you are paying for another person to be there. Usually you claim the tax relief at the end of the year but in certain circumstances tax relief may be available in the current year through the PAYE system.
DWELLING HOUSE RELIEF
An exemption from gift tax or inheritance tax in respect of a dwelling house exists where the beneficiary has been living in the house for three years prior to the gift or inheritance and stays there for a further six years.
The beneficiary cannot have an interest in any other residential dwelling. In the case of a gift, (as distinct from an inheritance) this exemption will not apply if the person giving the gift lived in the house for the three year period before the gift, unless the person giving the gift was required - due to ill-health or infirmity, - to depend on the services of the recipient for that period.
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors. www.som.ie. Ph: 051 640397